By Adrian Bray, CEO, Stellar Consulting in partnership with Xantrion
Management often has a love-hate relationship with technology. While it is a part of their daily life, they typically only interact with the IT department during onboarding, offboarding, or when there is a problem. In addition, IT-related costs are increasingly a more significant portion of the P&L.
IT and digital are often used so interchangeably that many misconstrue their meanings. In the context of this article, the term IT refers to hardware such as servers, workstations, networking equipment, software applications and databases, data storage and management, IT security and risk management, maintenance, support, and troubleshooting of technological systems.
Digital, on the other hand, is the transformational force that leverages technology, including utilizing advanced technologies such as Artificial Intelligence (AI), to develop digital-first strategies and business models, digital marketing and customer-centric approaches and employing real-time data analysis.
Businesses continue to invest in technology with various digital initiatives often classified as Digital Enablement, Digital Transformation, and Digital First. What do these terms mean, and why does it matter?
Digital Enablement: Empowerment
Digital Enablement utilizes technologies, tools, and platforms to enhance business processes, operations, and capabilities. Digital enablement aims to streamline traditional processes making them more efficient and cost-effective by integrating digital elements. It incorporates technology into existing workflows to improve productivity, collaboration, and decision-making. Digital Enablement is often gradual and may not involve a complete overhaul of an organization’s operations. Enablement is often the first stage of commencing a digital-first journey.
Digital Transformation: Systematic Evolution
Digital Transformation is a more comprehensive and radical change that an organization undergoes to leverage the full potential of digital technologies across its entire business model. It is a strategic initiative aimed at redefining the fundamental aspects of an organization, including its processes, culture, products, and customer experiences. Digital transformation often involves breaking away from traditional practices and adopting entirely new strategies to remain competitive in the digital age.
Digital transformation is not just about incorporating technology into existing processes but reimagining and reinventing those processes from the ground up to take advantage of the latest digital innovations. It can significantly change an organization’s structure, operations, and value proposition, unlock many opportunities, and pave the way for its advancement.
Digital First: Customer Experience
Digital-First is a business strategy or approach that prioritizes digital channels and technologies as the primary means of interacting with customers, clients, or users. Digital-first companies design their products, services, and customer experiences with digital platforms as the central focus, often employing mobile devices, web applications, and online platforms as the primary touchpoints.
By being digital first, organizations can cater to the preferences of digitally savvy customers and create seamless, convenient, and accessible digital experiences. Newer companies are often born with a digital-first mindset, which allows them to be better equipped to forge robust connections with customers and improve business operations for increased efficiency and performance. If they don’t, many digital-first competitors will win the lion’s share of new customers.
During the pandemic, some established middle market organizations took the opportunity to shift their business model to digital-first, including managing the cultural change and shift in customer interactions required to sustain the strategic choice.
Leadership’s Role in Defining Digital Strategy
Just as an organization has the choice to adapt to the digital landscape, leaders also have a choice in how they lead their organization’s digital journey. To be successful with a digital-first approach, there are several essential elements of digital leadership.
Reimagination
An organization only becomes digital-first by finding new ways to leverage technologies in interactions with its customers. Leaders must evangelize, motivate, and empower their employees and management to actively participate in reimagining the business.
Culture Shift or Shock?
Evolving an organization’s culture is critical to becoming either a digitally transformed or digital-first business. A well-defined culture is positive and actively managed, which enables the trust required to change the organization successfully. Leadership sets the tone by living and demonstrating cultural behaviors in their interactions, recognition, and incentives across the organization.
Truly reimagining a business is more than just automation of the existing processes. It is a redesign of everything from organizational structures, to processes, to the tools required to support both. It requires working back from why the customer buys what you provide and how they want to use it. This allows organizations to determine whether their product or service as well as how customers buy or use the product/service also needs to change.
Empathy During Change
The change process can be difficult because digitally transforming or becoming digital-first disrupts everyone. The most effective change leaders communicate with empathy, steadiness, and the fortitude to persevere along with a genuine understanding of the impact on their people.
Adequate training on the impact, as well as documenting the changes to processes and systems lay the foundation for a successful change.
Connecting Back to Vision
During the transformation to digital, reconnecting employees to ‘why’ the business was built and how the new culture and ways of working will benefit them and customers is also critical. Explaining how their skills and roles evolve will reduce anxiety because technology has often been cited for reductions in the workforce. For example, people are currently worried that AI will eliminate many skilled jobs. Successful transformation requires addressing concerns and highlighting the benefits of change.
Bad Actors in a Digital-First World
As more organizations have become reliant on information in digital form, often being accessed both inside and outside the physical business, the opportunity, and the activity levels of bad actors have increased exponentially.
In 2022, the FBI received more than 800K complaints with losses exceeding $10.3Bn, up from $6.9Bn in 2021. Phishing ranks first in the number of complaints and is miles ahead of personal data breaches and non-payment/non-delivery, which are ranked second and third.
According to the RSM Middle Market Business Index Cybersecurity Special Report, ransomware attacks remain the primary cybersecurity threat to middle market companies in 2023, with attacks resulting in several layers of harmful consequences. 35% of survey respondents disclosed they experienced an attack or demand, up from 23% last year. And business impacts don’t end with the ransom, there is reputational risk because attackers have started calling customers to tell them their data was stolen, and there’s been a significant increase in business interruption costs that many insurance policies don’t completely cover.
These threats have created concerns and increased risk for middle market companies trying to transform into digital-first organizations. In a recent National Center for the Middle Market (NCMM) study on Cloud Technology, 52% cite improved data security as a primary reason for cloud use and 25% cite concerns about security as a barrier to cloud usage.
What can Middle Market Organizations Do to Accelerate Digital Transformation?
The NCMM recently studied how the adoption of cloud services is helping middle market companies move to at least the transformation level of their digital journey. Cloud services are seen as a pillar of the respondent’s digital journey. Without the cloud, transforming or becoming a digital-first business is seen as prohibitively expensive. They found that heavier cloud usage correlated with faster revenue growth rates. 43% of respondents were born a cloud/digital first company. Most responding legacy companies have been using the cloud for three years. 50% of middle market businesses see the cloud as a necessity, and a further 42% see it as a game changer. Seven percent of the respondents do not see a need, or there is no business case for going digital.
The skills to protect the increasingly complex digital environment are in short supply and expensive to employ directly. Most middle market companies can only afford a few people with the skills to implement and maintain information security. There is an increasing number of solutions in the market to defend an organization’s digital environment. Many of these security solutions are cumbersome for the organization’s internal IT staff and customers. It is becoming increasingly difficult for companies below $50M to protect their cloud services investments alone. IT support businesses now provide cybersecurity services to help their clients safeguard their organizations.
Digital Transformation Journey – Case Studies
In preparing for this article, I had the opportunity to interview Anne Bisagno, CEO, and James Herndon, Systems Engineering Manager, at Xantrion, a middle market Managed Service Provider (MSP) focused on providing cybersecurity and IT support services for middle market clients. Before the pandemic, they were digitally enabled. They primarily used cloud solutions internally to improve technical support as well as increase communication and collaboration with their small group of remote employees.
During the pandemic, the growing acceptance of cloud-based solutions enabled them to transform into a digital first business. They made a variety of investments in cloud-based applications and tools as well as automation designed to protect themselves and even their most digital clients. They modified their processes, procedures, and training to align with their new way of doing business. They even strategically implemented AI technology to combat AI enabled threats as well as improve customer support and responsiveness.
Xantrion’s clients are at differing stages of their digital journey. They also differ in their willingness, or ability to work with a digital-first partner. Clients who want to migrate or are migrating to the cloud can more readily engage with Xantrion’s digital-first approach. They can also leverage Xantrion’s experience with digital transformation to improve their digital enablement and obtain advice on how to potentially become a digital-first business themselves.
The evolution of Xantrion’s business required executives, managers, and their teams to reimagine how they support and protect clients, acknowledging that not all clients could undertake their digital journey at the same pace. It also required them to review whether all clients were a match for where they were taking Xantrion. Upon reflection, it was clear some were not. Thoughtfully guiding slower-paced clients and transitioning some to an appropriate alternative MSP was part of their change management process.
A slower paced digital journey might look something like the one a San Francisco-based architecture and design firm, that was experiencing rapid growth, embarked upon. To address their unique needs, Xantrion recommended they start with a hybrid cloud solution in lieu of a complete shift to the cloud. This enabled the firm to manage costs and maintain system performance in an environment of headcount and location expansion. Xantrion seamlessly managed the security elements of this change, and they will serve as a strategic partner for operational adjustments as well as long-term IT vision going forward.
Embracing Digital Transformation in Business
The marketplace needs clarity about what digital enablement, digital transformation, and digital-first mean. While there is no perfect solution, there are proven methods for making the digital-first business as safe as possible. Whether motivated by valuation, revenue growth, or survival, those not embracing a digital journey may get left behind as many of today’s customers expect a digital-first experience.